There is an adage on Wall Street many have repeated over the years and more so in the last month:

BUY THE DIP.

What so many forget is another Wall Street adage similar to the first:

BUYING THE DIP WORKS UNTIL IT DOESN’T.

I have warned this is not over yet so don’t get too excited about buying the first decline.

My opinion is unchanged. Unless something drastic changes, the events put in motion will play out until their logical end (the end all panics end in).

Most readers of my blog have never experienced a prolonged decline in many markets at once. It has been 12 long years since things were really ugly. This will be the first REAL test of the FI and FIRE communities. Unfortunately, most leaders in these communities have also never experienced a real market panic when they had meaningful money invested.

By now I hope I convinced all of you to never invest with borrowed money. If you followed this advice it will only be a time thing before normalcy returns. Before the clouds clear, however, the news feeds will be littered with end of the world predictions. Unemployment will rise, markets will fall, the economy will slow or even decline. This has all happened many times before.

My advice to you, kind readers, is turn off the news feeds. The coronavirus will be fine without you watching its every move. Oil prices are going to decline heavily. Enjoy even cheaper gasoline prices in the interim.

If you didn’t sell at the high (you didn’t) don’t try to out guess the market now. Stand pat. Let the world around you panic as it always does. You, my good friends, are smarter than that. You will not be moved by a decline in your investment account balance. That is only a temporary thing unless you lock in the loss.

I was beginning to believe the coronavirus was the black swan event that would finally trip up this long bull run. It seemed strange because the coronavirus is bad, but not that bad. The economic damage could be sharp, but short lived.

The oil price war between OPEC (mostly Saudi Arabia) and Russia is the real black swan event I was waiting for. This has a real risk of causing serious damage.

If oil prices stay where they have fallen to (I’m writing this Sunday night, March 8th, 2020 when oil prices dropped into the upper 20s and gasoline futures dropped over 20 cents a gallon), U.S. shale companies are in deep trouble with massive debt and no way to work out of the problem. 700,000 jobs are on the line and several million more in halo industries serving the U.S shale oil industry.

Not all these jobs will be lost. But if even a reasonable percentage are lost the decade long economic expansion will come to an end.

Remember, the end of one economic expansion only paves the way for the next leg up.

I don’t know where the next economic advance comes from, but there are some strong indications. In 2008-09 shale oil was the one bright spot in the economy as oil prices were high. Oil will be an economic drag this time around.

Where will the next massive spike in economic growth come from? I have several guesses. Elon Musk made EVs cool and reliable. I expect the next economic surge will include a massive transition from ICE vehicles to EVs.

Solar, wind and other alternative sources of energy have the promise of huge economic growth. Even larger economically is storage technology. Batteries and other storage technologies for solar and wind will be nice areas to watch in the decade ahead.

After all this time the final frontier might be the biggest source of economic growth going forward. Virgin Galactic, SpaceX and Blue Origin will compete for space travel dollars. Space holds the promise of opening an economic boom never witnessed before.

So when the news feeds tell you the world is coming to an end, don’t believe it. None of this is new. Old guys like me have seen this before. The history books go even further back with stories of boom and collapse. It is the nature of a capitalist system. You have to take risk to build a better tomorrow and sometimes that leads to some short-term pain.

Stay well, my friends. And vigilant. Fear will rule in the weeks and months ahead. Do not allow your emotions to rule your common sense.

 

Note: I originally wrote this for a Facebook post for my followers. I removed that post shortly thereafter and pasted it into this post. I felt it was too important to leave this as a social media post that will gallop into the distance rapidly. 

You can read more about past market panic in this book. 

 

 

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